Move your savings now!

Banking expert Kevin Mountford joins moneysupermarket.com site editor Clare Francis, to discuss the recent Bank of England decision and to urge people to review their savings rates and switch to a better deal...

The Bank of England voted to keep base rate on hold at half a per cent again this month, which means it’s now been unchanged since March. In such periods of stability, you maybe forgiven for thinking that you don’t need to do anything about your savings rates either, but let’s not forget that base rate plummeted from 5% to half a per cent between October last year and March this year. As a result, savings rates have also fallen, yet millions of people are unaware what their saving account is currently paying them.

So, moneysupermarket.com has launched a campaign, and we are urging you to ring your bank or building society and find out what rate of interest you are currently earning on your savings account.

Kevin Mountford, who is head of banking at moneysupermarket.com, is with me to explain what the campaign is all about.

Q1: Kevin, we carried out some research which found that collectively British savers could boost their annual earnings by £7.7 billion, which is a massive amount. Can you just explain why?

KM: Well, I guess the top line is the fact that the base rate’s remained flat for so long now. The danger is that people get quite relaxed and think well it’s just not worth doing anything.

We’ve continually kept pushing the fact that now is not the time to be complacent, there is a considerable gap between the best paying accounts and not only the worst paying but the average – and that difference can be substantial.

So we recently undertook a survey with UK adult savers and tried to evaluate one or two things and there were alarming results. First of all, in terms of how many people who have had accounts up to ten years and beyond, and then on the back of that their desire to actually challenge the rates they are getting.

And on the back of that we took the average that most people where getting for an easy access, we then took a blend of the best accounts and on an average of £10,000 deposit there’s somewhere near £200 a year that people could actually earn. If you played that out in terms of the total saving base in the UK – as you mentioned – that’s nearly £8 billion sitting in the banks’ pockets, when it could actually be sitting in ours, the customers.

Q2: And this apathy that so many of us are guilty of here in the UK, is what the banks rely on basically isn’t it? And although the base rate is at half a per cent, a lot of savings accounts are paying even less then that, so this is really just to try and urge people to actually move their money and earn more from it?

KM: Yes, as we proved from the makeovers that we run here at moneysupermarket.com, it’s not just banks; lots and lots of suppliers across different markets rely on the fact that we are quite complacent. We all lead busy lives; it’s sometimes difficult to put quality time aside to think: ‘Right what products and services have I got? What value’ – and its not just price but general value – ‘could I get if I dedicated a little bit of time?’ From a savings point of view, as I say, I think we have still got the hangover from last year where we have seen exceptionally high rates in the market – 6-7% etc – [but] that with the nose dive we had with bank base rate to 0.5% people just think: ‘Is it worth it?’

Well the research that we have undertaken and everything else that we have talked about in recent weeks around savings says that yes it very much is worth taking some action.

Q3: And while you might not be able to earn 6 or 7% as you could this time a year ago, there is massive competition at the moment in the market, isn’t there? We are seeing a battle between providers and so as a result the highest paying accounts are paying significantly more then the half a per cent base rate. Can you explain what you can get if you are wanting an easy access account?

KM: Yes. I mean just going back a few months everyone was running scared because of the saving crisis of last year, so your main consideration will be were is my money going to be safe, and I’m guess that the more established major banks took advantage of that, thinking: ‘Well everyone is coming to us.’

The banking crisis has meant that banks and building societies are desperate for our savings, their balance sheet need to get a good percentage of what we call retail inflow. So the banks are hungry, the base rate environment being flat doesn’t give them a great deal of opportunity to do much around rates, but what we have seen this year, we have seen an ISA season that has maybe dragged on longer then we normally anticipate and there has been some good rates in there – bear in mind the tax advantages.

Q4: And normally the main activity in that market is sort of March/April isn’t it, because the tax year ends in April?

KM: Yes, but is has pretty much dragged on to June – or certainly towards the end of June – before we have started to see those rates fall back. Also, without getting too complicated, what we call the swap market i.e. anticipated rates in the markets over the coming years means that fixed rate bonds have been competitively priced. We have continually said that if you can afford to, [there’s] a real opportunity to maximise your return on one year products. So we have seen north of 4%, so 4% is a real premium again over bank base rate.

What we have seen over the last few weeks now is the banks starting to turn their attention to what we call easy access or an instant access. In years gone by this pretty much takes up most of the market, it hasn’t for the start of this year, it will be interesting to see how it pans out over the coming weeks and months. But you have been able to get something like 3%, so again for an easy access product, 3% over 0.5% base rate can make a tremendous difference to your savings.

The only thing I would add is that with some of the easy access, they are variable rate and that means you could be lured in with big headline rates for that to fall back. Also a number of the have got bonuses but don’t be afraid of it, take the best rate you can and then just make sure you keep a mental note in your diary, even a post-it note on your fridge and say: ‘At that particular time I’m going to spend half an hour and review my savings check if the rate is still good and if not its in our hands to do something about it.’

Q5: And that’s what this campaign is about isn’t it? It’s for people who have not necessarily got introductory bonuses that are ending but for anyone who doesn’t know what there savings rate is ring your bank and find out and move your money if you need to.

KM: Yes, gosh. I remember back in April this year, my ISA provider. I rang them up because I saw they had got a new issue and the person at the call centre was somewhat apologetic and said: ‘Do you realise we are only paying you 0.9%?’ You would think I would know better, but I changed it and that just took a few minutes of my time and suddenly I am getting an extra couple of per cent on the bottom of my hard earned cash, so it is defiantly worth doing.

CF: Yes it is worth doing, I have changed my savings account recently as well.